3 Growth Stocks at Value Stock Prices

It's not surprising that after an eight-year bull market, some are saying value investing is dead. With the cyclically adjusted P/E ratio of the S&P running at a red-hot 31, finding a value stock can indeed be tough. And to assign a "value" label to a stock in today's market, many analysts are having to engage in some impressive mental gymnastics.

The value stocks are out there, though. So we asked three of our value-minded investing contributors to each highlight a stock they see as a value today. Here's why they picked DaVita (NYSE: DVA), Tellurian (NASDAQ: TELL), and Skechers (NYSE: SKX).

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One for the pessimists

Cory Renauer (DaVita Inc.): Shares of this leading provider of dialysis and related services have been getting battered over concerns regarding an important source of revenue. Many of the company's privately insured patients who can't afford their own copays receive financial assistance from the American Kidney Fund, a non-profit charity that receives significant donations from DaVita and its peers.

Even though Medicare's base reimbursement rate per treatment is just $231.55, DaVita reported revenue of $352.64 per procedure last year. The huge difference is possible because the bills DaVita sends Uncle Sam are much smaller than the ones it sends to private insurers. The stock has slid deep into value territory over fear that the circular donation scheme that brings in a great deal of privately insured patients might come to an end. Even though DaVita has generated 379% more free cash flow in the past year than it did a decade ago, the stock is trading at just 10 times trailing free cash flow.

Although I'd like to believe that the opaque, convoluted medical billing practices that make circular donation schemes possible will somehow get fixed, the pessimist in me doesn't expect to see such a fix in my lifetime. DaVita might be priced like a deep value stock, but it looks as if this company's bottom line will continue growing at a fair clip.

If it grows like its peers, then it's really cheap

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Tyler Crowe (Tellurian): Tellurian, begun by Cheniere Energy (NYSEMKT: LNG) founder Charif Souki and several of his original Cheniere staff, is in the process of building an LNG export terminal in Louisiana. Sound familiar? Much of what Tellurian is doing has so far followed Cheniere Energy's script of four or five years ago. That's what makes Tellurian an interesting, and possibly cheap, stock.

Tellurian is also going to run into many of the hurdles Cheniere did early on. It has to lock in a customer base that will guarantee there's enough demand for liquefied natural gas. It will have to get regulatory approval to export to non-free-trade-agreement countries, and then it will have to raise tens of billions of dollars to build its proposed Driftwood LNG facility that will be able to process 27.6 million tons of liquefied natural gas per year.

To see why this stock is cheap, consider again Cheniere, Tellurian's blueprint. According to Cheniere's estimates, the first four trains of its Sabine Pass facility -- about 27 million tons per year of LNG -- will generate about $1.1 billion in annual EBITDA. It's not a stretch to assume that Tellurian's facility will be able to produce similar results. If it does, then consider that its stock today is valued at 1.8 times future EBITDA. It's fair to handicap the stock for all the hurdles it will have to overcome, but the company has done this once before. If it can follow -- or even improve upon -- the process Cheniere went through, then this could be an incredibly cheap stock.

A lot to like

Tim Green (Skechers): Footwear company Skechers isn't growing as fast as it was a couple of years ago, when year-over-year growth rates in excess of 25% were the norm. The stock is also no longer the highflier it once was. Shares are down 54% since peaking in 2015. But the market is completely ignoring the growth story, which is now less impressive but far from dead.

Skechers' most recent quarter showcased the company's growth potential. Total revenue soared 17% year over year, driven by an 18.6% increase in the international wholesale business and a 28% increase in the global retail business. U.S. wholesale wasn't too shabby, either, growing by 6.4%. Operating costs were up as Skechers invests in growing international sales, but earnings should eventually catch up with sales.

Despite this growth, the market currently values Skechers at about 15.5 the average analyst estimate for full-year earnings, and 12.4 times the estimate for 2018 earnings. These metrics ignore Skechers' rock-solid balance sheet, which features $676 million of net cash, representing about 17% of the company's market capitalization.

What do you get with Skechers? Double-digit revenue growth, a mid-teens P/E ratio in a much richer market than that, and a cash-rich balance sheet that allows the company to make the investments it needs to make to drive long-term growth. Growth and value, all in one package.

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Cory Renauer has no position in any of the stocks mentioned. Timothy Green owns shares of Skechers. Tyler Crowe owns shares of Tellurian. The Motley Fool owns shares of and recommends Skechers. The Motley Fool owns shares of DaVita. The Motley Fool has a disclosure policy.